280E is such a punishing tax burden for cannabis businesses. Corporations are paying the IRS 25% or more in income taxes than a regular business. Therefore, work the system and take all allowable deductions.
Tax Tip #1: COGS Deductions
Cultivators and Manufacturers
Your COGS should reflect upwards of 90% of total expenses. What is never a write-off is any marketing, legal, and other administrative type expenses.
Don’t lose out on depreciation for unreported start-up or buildout costs. List everything, even if there are missing. A workbook should be put in place listing all the available support (see Tip #3).
Distributors and Retailers
You need to get creative. Under 280E, other than the cost to purchase the product, additional deductions are hard to find. You can include some procurement and quality control type expenses into COGS, but that’s about it.
There is the 471(c) approach that points the tax return to a competing law which has not been ruled on by the IRS.
A 471(c) approach means developing Accounting Standard Operating Procedures (SOP) that flow into the books and records. This is an approach that takes a concerted effort in documentation, but it can lead to significant tax savings. I can’t stress enough the need for rational and comprehensive SOPS which lead to complete and accurate books as narrated in your SOPs.

Conservative CPAs and Attorneys may shy away from this approach, as this is a risk to the business and the CPA filling the return. However, our approach is to inform our clients what are the risks and ways to mitigate the risks for both the business and the CPA.
Tax Tip #2: Capitalized Costs
The language around 280E is a very short; one long run-on sentence. It starts off with “No deduction or credit shall be allowed…” (Deductions are reported below COGS on the Profit and Loss statement.)
The courts have ruled that 280E filers need to follow Generally Accepted Accounting Principles (GAAP). The capitalization of costs is a pure GAAP concept where you push on to the balance sheet costs and depreciate or amortize over a defined number of years.
For example, if you purchased a truck to haul materials, a normal business can write-off the entire cost in the year it was put in service, under IRC section 179 as a deduction. Under GAAP, this cost is required to go onto the balance sheet and be depreciated over 5 years. From the balance sheet the business can claim the depreciation as a COGS write-off.
This same concept can be applied for machinery and equipment used in your cultivation and manufacturing process. On the other hand, this becomes an issue for distributors and retailer, but this is where this 471(c) comes into play (see tip #1).
Tax Tip #3: Creating Support
Not all support is created equally, and some literally needs to be created from scratch.
For example, unless you are reporting purely on a cash basis, materials costs recorded into COGS are calculations based on analysis of beginning inventory, purchases and ending inventory. You also need to analyze against what METRC shows. Your end result is a workbook with a repeatable methodology for calculating COGS every month.
Another example is if you have sister companies that enter into a building lease agreement. The rent should be determined based on an arm-length transaction or Fair Market value (FMV). How do you get the FMV? You can hire a “specialist” if there is a complicated arrangement, or you can create the support by doing your own Google search on like size leased property. Keep all support and the methods used in the calculation of the different variables, such as common areas cost split, shared service costs, etc
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§ 280E
No deduction or credit shall be allowed for any amount paid or incurred during the taxable year in carrying on any trade or business if such trade or business (or the activities which comprise such trade or business) consists of trafficking in controlled substances (within the meaning of schedule I and II of the Controlled Substances Act) which is prohibited by Federal law or the law of any State in which such trade or business is conducted.